Tata Motors share price slipped over 3 percent in early trade on July 7 after the company flagged chip supply shortage.
Shortage of semiconductors may see Jaguar Land Rover report 50 percent lower wholesale volumes by the end of the September 2021 quarter coupled with a negative EBIT margin, Tata Motors, the owner of the two British brands, warned.
“Looking ahead, the chip shortage is presently very dynamic and difficult to forecast. Based on recent input from suppliers, we now expect chip supply shortages in the second quarter ended September 30, 2021, to be greater than in the first quarter, potentially resulting in wholesale volumes about 50 percent lower than planned, although we are continuing to work to mitigate this,” company said in a BSE filing.
The broader underlying structural capacity issues will only be resolved as supplier investment in new capacities comes online over the next 12-18 months, so we expect some level of shortages will continue through to the end of the year and beyond, the company added.
Jaguar Land Rover retail sales for the three-month period to June 30, 2021 were significantly up YoY, reflecting the continuing recovery in demand from the Covid 19 pandemic, particularly compared to a year ago.
Retail sales for the first quarter ending June 30, 2021 were 124,537 vehicles, 68.1 percent higher than the 74,067 vehicles sold in Q1 last year. Retails were higher YoY in every key region including in the UK (+186.9 percent), Europe (+124.0 percent), Overseas (+71.0 percent), North America (+50.5 percent) and China (+14.0 percent), the company said.
The conference call with the senior management of Tata Motors and Jaguar Land Rover to update on JLR Q1FY22 sales volumes and the semiconductor supply situation will start from 5:30 PM (India time) on 7th July 2021, company said in its release.
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Here is what brokerages have to say about the stock and the company after the announcement:
Nomura | Rating: Neutral | Target: Rs 353
The chip shortage is much higher than expected and FCF/EBIT will remain negative in H1FY22. There is a risk of delayed launch of new Range Rover as well. Given negative FCF, our FY22 debt assumptions have an upside risk.
Morgan Stanley | Rating: Equal-weight | Target: Rs 300
JLR, hit by chip shortage, guides for negative EBIT margin in H1FY22. The impact of chip shortage at JLR is much more than we had anticipated.
The key to monitor is that the demand environment in H2FY22 remains healthy.
Motilal Oswal | Rating: Buy | Target: Rs 400
All three Tata Motor’s businesses are in recovery mode. While the India CV business would see a cyclical recovery, the India PV business is in a structural recovery mode.
JLR is also witnessing a cyclical recovery, supported by a favorable product mix. However, supply-side issues will defer the recovery process. While there would be no near-term catalysts from the
JLR business, the India business (~50% of SoTP) would see a continued recovery.
ICICI Direct | Rating: Buy | Target: Rs 375
We now expect company’s FY21P-23E sales CAGR of 18.4% with FY23E EPS of Rs 37.6. The chip shortage-led production warning comes as a negative surprise and is likely to impact CFO generation in FY22E.
However, we retain our positive stance on stock for the medium to long term given its intent to reduce automotive net debt to near zero levels (from Rs 41,000 crore as of FY21), alertness to global automotive mega change of electrification (Jaguar to be all-electric by 2025, Land Rover to introduce 6 BEVs in the next five years; EV leader in India 4-W currently via Nexon) and focus on sustainable FCF generation, going forward.
At 09:16 hrs, Tata Motors was quoting at Rs 309.80, down Rs 7.15, or 2.26 percent on the BSE.
The share touched a 52-week high of Rs 360.65 and a 52-week low of Rs 100.45 on 15 June, 2021 and 02 July, 2020, respectively.
Currently, it is trading 14.1 percent below its 52-week high and 208.41 percent above its 52-week low.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.